Fedex Misses

Fedex (FDX) reported 1st Quarter August 2018 earnings of $3.51 per share on revenue of $17.1 billion. The consensus earnings estimate was $3.83 per share on revenue of $16.9 billion. The Earnings Whisper number was $3.84 per share. Revenue grew 11.5% on a year-over-year basis.

The company said it now expects fiscal 2019 earnings of $17.20 to $17.80 per share and continues to expect revenue of approximately $71.34 billion. The company's previous guidance was earnings of $17.00 to $17.60 per share and the current consensus earnings estimate is $17.31 per share on revenue of $71.04 billion for the year ending May 31, 2019.

FedEx Corp provides a portfolio of transportation, e-commerce and business services. It operates in four business: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services.

Solid execution of its business plan helped FedEx increase first-quarter earnings. More than 130 automated facilities at FedEx Ground feature state-of-the-art technology such as six-sided scanning of packages and sorting decisions made in less than half a second. (Photo: Business Wire)

Fiscal 2019

Fiscal 2018

As Reported

(GAAP)

Adjusted

(non-GAAP)

As Reported

(GAAP)

Adjusted

(non-GAAP)

Revenue

$17.1 billion

$17.1 billion

$15.3 billion

$15.3 billion

Operating income

$1.07 billion

$1.19 billion

$971 million

$1.09 billion

Operating margin

6.3%

7.0%

6.3%

7.1%

Net income

$835 million

$933 million

$596 million

$683 million

Diluted EPS

$3.10

$3.46

$2.19

$2.51

This year’s and last year’s quarterly consolidated results have been adjusted for:

Impact per diluted share

Fiscal 2019

Fiscal 2018

TNT Express integration expenses

$

0.36

$

0.30

FedEx Trade Networks legal matters

—

0.02

“FedEx delivered higher first-quarter earnings driven by solid execution of our business plan and a strong U.S. economy,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “We are very optimistic about our prospects for profitable growth and remain confident we will reach our goal to improve FedEx Express operating income by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017.”

Operating income improved during the quarter, benefiting from higher volumes, increased yields and a favorable net impact of fuel at all transportation segments. Net results benefited by $0.50 per diluted share as a result of the enactment of the Tax Cuts and Jobs Act (TCJA), primarily from a lower statutory income tax rate.

FedEx recognized substantially higher variable compensation accruals during the quarter, as last year’s first quarter results were negatively impacted by the NotPetya cyberattack at TNT Express. Also, during the fourth quarter of fiscal 2018 the company accelerated wage increases for certain hourly employees due to the enactment of the TCJA. Collectively, the impact of these items negatively affected year-over-year results by $170 million ($0.48 per diluted share).

Last year’s earnings included the estimated negative impacts of the NotPetya cyberattack affecting TNT Express ($300 million or $0.79 per diluted share) and Hurricane Harvey ($0.02 per diluted share). As previously disclosed, new pension accounting rules are now in effect and fiscal 2018 results have been recast to reflect application of the new rules. The new rules have no effect on net income or earnings per share.

The company acquired 2.6 million shares of FedEx common stock during the quarter at an average price of $238.95.

Outlook

FedEx is unable to forecast the fiscal 2019 year-end mark-to-market (MTM) retirement plan accounting adjustments. As a result, the company is unable to provide a fiscal 2019 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.

FedEx has increased its fiscal 2019 earnings per share outlook and reaffirms its other financial targets for the year:

Earnings of $15.85 to $16.45 per diluted share before year-end MTM retirement plan accounting adjustments, up from the prior forecast of $15.65 to $16.25 per diluted share;

Earnings of $17.20 to $17.80 per diluted share before year-end MTM retirement plan accounting adjustments and excluding TNT Express integration expenses, up from the prior forecast of $17.00 to $17.60 per diluted share;

ETR of approximately 25% prior to year-end MTM retirement plan accounting adjustments; and

Capital spending of $5.6 billion.

These forecasts assume moderate economic growth and stability in global trade. The company’s ETR and earnings per share outlooks are based on current TCJA interpretative guidance and are subject to change based on future guidance.

“As expected, the quarter’s results were affected by our decision to invest in our team members following the passage of the Tax Cuts and Jobs Act,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “We remain committed to increasing earnings, margins, cash flows and returns this year.”

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $67 billion, the company offers integrated business solutions through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 425,000 team members to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities. To learn more about how FedEx connects people and possibilities around the world, please visit about.fedex.com.

Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs, Form 8-Ks, and Statistical Books. These materials, as well as a webcast of the earnings release conference call to be held at 5:00 p.m. EDT on September 17, are available on the company’s website at investors.fedex.com. A replay of the conference call webcast will be posted on our website following the call.

The Investor Relations page of our website, investors.fedex.com, contains a significant amount of information about FedEx, including our Securities and Exchange Commission (SEC) filings and financial and other information for investors. The information that we post on our Investor Relations website could be deemed to be material information. We encourage investors, the media and others interested in the company to visit this website from time to time, as information is updated and new information is posted.

Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, a significant data breach or other disruption to our technology infrastructure, anti-trade measures and changes in international trade policies, our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame and at the expected cost, changes in fuel prices or currency exchange rates, our ability to match capacity to shifting volume levels, new U.S. domestic or international government regulation, future guidance, regulations, interpretations or challenges to our tax positions relating to the TCJA and our ability to realize the benefits of certain provisions of the TCJA, our ability to effectively operate, integrate, leverage and grow acquired businesses, our ability to achieve our FedEx Express segment profit improvement goal, legal challenges or changes related to owner-operators engaged by FedEx Ground and the drivers providing services on their behalf, disruptions or modifications in service by, or changes in the business or financial soundness of, the U.S. Postal Service, the impact of any international conflicts or terrorist activities and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and FedEx Corp.’s filings with the SEC. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The financial section of this release is provided on the company's website at investors.fedex.com

The company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or “reported”). We have supplemented the reporting of our financial information determined in accordance with GAAP with certain non-GAAP (or “adjusted”) financial measures, including our adjusted first quarter fiscal 2019 and 2018 consolidated operating income and margin, net income and diluted earnings per share, and adjusted first quarter fiscal 2019 and 2018 FedEx Express segment operating income and margin. These financial measures have been adjusted to exclude the impact of the following items (as applicable):

We have incurred and expect to incur significant expenses over the next few years in connection with our integration of TNT Express. We have adjusted our first quarter fiscal 2019 and 2018 consolidated financial measures and the FedEx Express segment first quarter fiscal 2019 and 2018 financial measures to exclude TNT Express integration expenses because we generally would not incur such expenses as part of our continuing operations. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including salaries and wages, professional and legal fees, advertising expenses and travel. Internal salaries and wages are included only to the extent the individuals are assigned full-time to integration activities. The integration expenses also include any restructuring charges at TNT Express.

We believe these adjusted financial measures facilitate analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of, or are unrelated to, the company’s and our business segments’ core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying businesses. These adjustments are consistent with how management views our businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating the company’s and each business segment’s ongoing performance.

Our non-GAAP measures are intended to supplement and should be read together with, and are not an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of our financial statements should not place undue reliance on these non-GAAP financial measures. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP financial measures to the most directly comparable GAAP measures.

We have provided these non-GAAP financial measures for the same reasons that were outlined above for historical non-GAAP measures. These items are excluded from our fiscal 2019 operating margin, EPS and ETR forecasts, as applicable, for the same reasons described above for historical non-GAAP measures.

We are unable to predict the amount of the year-end MTM retirement plan accounting adjustments, as they are significantly impacted by changes in interest rates and the financial markets, so such adjustments are not included in our fiscal 2019 EPS and ETR forecasts. For this reason, a full reconciliation of our fiscal 2019 EPS and ETR forecasts to the most directly comparable GAAP measures is impracticable. It is reasonably possible, however, that our fiscal 2019 year-end MTM retirement plan accounting adjustments could have a material impact on our fiscal 2019 consolidated financial results and ETR.

As previously disclosed, the provisional benefit from the remeasurement of our net U.S. deferred tax liability included in our fiscal 2018 earnings is an estimate subject to adjustment during a 12-month measurement period ending in fiscal 2019. Any adjustment to this provisional benefit will be excluded from our fiscal 2019 non-GAAP earning measures, which is consistent with our presentation of the effects of the initial provisional benefit in our fiscal 2018 non-GAAP earnings measures.

The table included below titled “Fiscal 2019 Earnings Per Share Outlook” outlines the impacts of the items that are excluded from our fiscal 2019 EPS forecast, other than the year-end MTM retirement plan accounting adjustments. Additionally, the table below titled “Fiscal 2019 Operating Margin Forecast” presents a reconciliation of our presented non-GAAP measure to the most directly comparable GAAP measure.